India must accelerate its shift towards renewable energy despite the ongoing geopolitical crisis in the Middle East, according to Suma Chakrabarti, chair of the board of trustees at the Overseas Development Institute (ODI) and co-chair of the Emerging Markets Forum. In an interview with Moneycontrol, Chakrabarti emphasised that India cannot afford to delay its energy transition while waiting for global stability, particularly amid the Israel-Iran conflict and delays in funding from multilateral development banks (MDBs).

“India has made a significant commitment to renewable energy. We should not wait for the global situation to clear up. India needs to reduce its dependence on fossil fuels,” Chakrabarti said. He pointed out that as a large economy, India could make a substantial impact on both domestic energy security and global climate challenges. The country’s energy transition, he suggested, could be funded through a blend of domestic and foreign private investment, rather than relying solely on MDBs.

“Private capital, both Indian and foreign, will continue to flow into India, especially in the renewable energy sector, which offers high returns. India is viewed as an oasis of stability compared to other conflict-ridden regions, making it an attractive destination for investment,” he added.

The urgency to bolster domestic and foreign private investments was echoed by other economists. Chakrabarti highlighted the high rate of return on renewable projects, making them appealing to entrepreneurs, and emphasised India’s potential to attract foreign capital due to its relative economic and geopolitical stability.

Chakrabarti also touched upon the challenges MDBs face in disbursing funds, citing political resistance in advanced economies. However, he stressed that India’s leadership in forums like the G20 could push for collective action from emerging markets. “India can lead... It did during its G20 presidency last year by setting an agenda on MDB reform and climate action,” he said.

Risks and resilience

Economists Nitin Desai and Charan Singh shared Chakrabarti’s optimism about India’s resilience in the face of global uncertainties, particularly in the Middle East. Despite ongoing tensions, Singh, CEO and founder-director of the EGROW Foundation, noted that India’s current position with comfortable oil supplies and foreign exchange reserves provides a buffer against immediate shocks. The economists spoke to Moneycontrol on the sidelines of the Kautilya Economic Conclave in New Delhi.

“I don't see an immediate impact on India from the Middle East crisis as we have stable oil supplies and a healthy foreign exchange reserve position. Russian oil is also available to us,” Singh told Moneycontrol. However, he cautioned that if the conflict escalates, there could be medium- to long-term disruptions, particularly in global oil markets, which could eventually affect India.

Singh expressed concerns about the broader Middle East, warning that prolonged instability could have spillover effects. “The situation could impact countries like Lebanon and Syria, disrupting supply chains and our exports,” he added.

Domestic investment sluggish 

While foreign private investment in India’s renewable energy sector is expected to continue flowing in, Desai raised concerns about the delayed pick-up in domestic private investment. Desai pointed out that despite being cash-rich, Indian companies are holding back on investments due to weak domestic demand. “Our manufacturing industry is underperforming due to lack of demand growth. Companies have cash but aren’t investing at their full potential,” Desai remarked.

Desai emphasised that both domestic demand and export ratios in manufacturing have declined, and the slowdown in consumption growth remains a pressing issue. “Our ratio of exports in manufacturing has come down, and domestic demand growth has been sluggish. The slowdown in consumption growth is a serious problem,” he explained.

He also highlighted that while government initiatives such as production-linked incentive (PLI) schemes focus on boosting investments in new technologies, they do not directly address the core issue of demand. “The government must address what is stopping consumer demand from increasing,” he said.

Desai acknowledged that while financial support for women and other segments of the population has provided some relief, these measures are insufficient to reignite robust demand. He called for policies aimed at boosting wages, rural incomes and consumer spending to drive growth in the manufacturing sector.

Looking ahead, Desai expressed cautious optimism about a potential recovery in consumption, pointing to signs of improvement in retail demand and the possibility of a strong harvest due to favourable monsoon conditions. “Rural income growth, driven by a good crop this year, could provide a much-needed boost to consumption,” he added.